A Procurement Paradox?
July 17, 2017
Forewarning: this is not a new topic. If you work anywhere near the retail design industry, the terms procurement, value engineering and cost analyzation are more than likely a part of your daily vernacular. In retail, the price of materials and specifications, as you know, is always a top-line priority, and particularly in the United States.
Let’s rewind back to World War II for a moment. During the war, there were shortages of skilled labor, raw materials and a scarcity of certain component parts, as has been well documented in U.S. history books.
Lawrence D. Miles was a purchasing engineer on the team responsible for buying raw materials for the General Electric Co. during this time. He quickly realized that if he was unable to obtain a particular material, then it was necessary to find a replacement material that performed the same function. He developed a creative, team-based, six-step approach dubbed “value analysis” (later coined “value methodology” or “value engineering,” likely because of GE’s engineering background), a methodology that is used to improve the “value” of goods, products or services by examining the ratio of function to cost. (Miles later published “Techniques of Value Analysis and Engineering” in 1961—now in its third edition and printed in 12 languages.)
Value engineering employs a rational logic base with problem-solving structure at its core—“how” and “why” are common questions asked as part of the process. In fact, on the Lawrence D. Miles Value Foundation website, he is quoted as saying “All cost is for function.” In theory, value engineering promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality. Physical attributes are not, in this method, supposed to play a role in decision making.
The issue for the retail industry, of course, is how this very logical engineering process fits into design, form and aesthetics—not to mention the brand, purpose and mission behind a retailer’s core. I’ve heard stories of design teams duking it out with their in-house procurement teams over anything from a simple hanger to an entire perimeter wall. Sometimes the very mention of the word “procurement” enacts an uncomfortable shudder from the design team. On the plus side, this has led to a growth of collaboration between retailer and manufacturer, to work together to redefine form AND function, and at a cost the procurement team can live with.
But procurement and value engineering are not always an in-house obstacle. Some retailers and brands have begun outsourcing the procurement of materials, like signage, POP, fixtures and even mannequins, to third-party logistics companies that find and source product for them directly. While as a business practice this seems economical and practical, what happens to in-house design teams? (Will there still be in-house design?) Does it end the ability for collaboration between the retailer and manufacturer? Does value engineering by a third-party firm impact design integrity? Will design be commoditized?
Value engineering is certainly not the end-all-be-all for retail—it has probably saved retailers millions of dollars. But in an age where retail needs innovation and disruption more than ever, commoditized, lowest-cost design may be a risky direction to take.
In this July Fixture Leaders issue, we wanted to shine a light on this industry phenomenon.
What does procurement look like in five or 10 years? More in-house? More third-party? Would love to hear your thoughts! Email me directly at email@example.com.